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PNC buying National City for $5.58 billion

The bank uses cash from the federal bailout program to make the acquisition.

October 25, 2008|the associated press

NEW YORK — PNC Financial Services Group Inc. said Friday that it was buying National City Corp. for $5.58 billion, the first acquisition of a bank using fresh investments from a federal bailout program.

The deal comes within hours of PNC Financial receiving approval for $7.7 billion in cash from the government under the $700-billion program aimed at relieving the ongoing credit crisis.

The agreement is the latest deal in the rapidly consolidating banking industry. It combines Pittsburgh-based PNC, which has weathered the ongoing credit crisis better than most regional banks, with National City, a Cleveland-based regional bank weighed down by high-risk mortgage loans.

National City posted a quarterly loss this week of $5.15 billion, or $5.86 a share. Excluding a special dividend, the bank lost $729 million, or 85 cents.

The acquisition makes PNC Financial the nation's fifth-largest bank by deposits and will give it the fourth-most branches, said James Rohr, PNC's chairman and chief executive. The combined bank will have about $180 billion in deposits and more than 2,700 branches.

The new footprint will cover most of the mid-Atlantic and Midwest states as well as Florida. The combined bank will have the largest deposit base in Pennsylvania, Ohio and Kentucky.

"PNC now becomes a major force in retail," said Bart Narter, a senior vice president in the banking group at consulting firm Celent. "PNC just doubled in size for not a lot of money."

This is by far PNC's largest acquisition -- National City's deposit base is larger than that of PNC. Since the early 1990s, PNC has acquired more than a dozen banks as it expanded its operations and its retail banking business.

PNC will pay $5.2 billion for National City through a stock transaction that values National City at about $2.23 a share, an 18.9% discount from Thursday's closing price of $2.75.

The remaining $384 million will be a cash payment to certain warrant holders.

National City shareholders will receive 0.0392 of a share of PNC common stock for each share of National City they own.

Shares of PNC rose $2, or 3.5%, to $58.88 on Friday. National City shares fell 68 cents, or 25%, to $2.07.

The government plan calls for the U.S. Treasury to purchase preferred stock and warrants from banks in return for fresh capital. The plan is designed to help banks that have been struggling since the middle of 2007 with rising mortgage defaults and a credit crisis that has essentially shut down lending among banks and severely restricted lending to consumers.

The government will receive warrants to acquire a 15% stake in PNC Financial. The warrants will be good for 10 years unless retired by PNC, the company said.

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